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What Business Owners Need to Know

Part 3 of Series

Welcome back to our series on the Corporate Transparency Act (the "Act"). It was adopted by Congress in December of 2020, with Final Regulations issued by the Financial Crimes Enforcement Network (FinCEN) in September 2022. It will take effect January 1, 2024. In previous posts, we discussed the types of organizations required to file beneficial ownership reports and explored who qualifies as a beneficial owner under the Act. In this post, we will delve into the penalties for non-compliance with the Act and the available "safe harbor" provisions.

Penalties for Non-Compliance

The Act imposes significant civil and criminal penalties for failure to comply with the reporting requirements. These penalties aim to ensure accountability and encourage businesses to fulfill their obligations in disclosing beneficial ownership information.

Civil Penalties:

For each willful violation of the Act, businesses can face civil penalties of up to $500 per day. These penalties can accumulate over time and may have a substantial financial impact on non-compliant reporting companies.

Criminal Penalties:

In addition to civil penalties, the Act establishes criminal penalties for knowingly and willfully providing false or fraudulent information. Individuals found guilty of intentional misrepresentation or knowingly failing to report accurate information may face criminal charges, leading to fines of up to $10,000 and imprisonment for up to two years.

Safe Harbor

Unintentional violations may occur despite diligent efforts. Therefore, the Act includes a safe harbor provision for reporting companies. The Act provides protection for businesses that make a good faith effort to comply but inadvertently fail to meet certain reporting requirements. It offers an opportunity to rectify errors and avoid severe penalties.

To qualify for safe harbor, reporting companies must demonstrate that they have:

  • Made a reasonable effort to comply with the Act's requirements.
  • Acted in good faith by providing accurate and complete information to the best of their knowledge.
  • Promptly rectified any errors or omissions upon discovering them, but in no case later than 90 days after the date on which a beneficial ownership report was filed.

While this safe harbor provision should offer businesses some comfort in the case of inadvertent errors, businesses should not rely solely on its provisions. It is crucial to establish robust compliance measures and maintain accurate records to minimize the risk of unintentional non-compliance.

Best Practices for Compliance

To ensure compliance with the Corporate Transparency Act and mitigate potential penalties, reporting companies should consider taking the following actions.

Establish Internal Compliance Procedures:

Develop comprehensive procedures that outline the process for identifying beneficial owners, collecting required information, and maintaining up-to-date records. Assign a designated Compliance Officer or team responsible for overseeing these procedures.

Regularly Review and Update Information:

Continuously monitor and update beneficial ownership information as changes occur. Implement mechanisms to promptly capture and report any modifications to FinCEN.

Conduct Periodic Compliance Audits:

Regularly review and audit your compliance procedures to identify any potential gaps or areas for improvement. This proactive approach can help mitigate risks and ensure ongoing compliance.

Seek Legal and Professional Guidance:

Engage legal counsel or compliance professionals well-versed in the Corporate Transparency Act to stay informed about evolving regulatory requirements and receive guidance on compliance obligations specific to your business.

CME Stands Ready to Assist

As this series has demonstrated, compliance with the Act is crucial for businesses to avoid substantial penalties. By understanding the consequences of non-compliance and implementing robust compliance procedures, reporting companies can navigate the Act's requirements effectively. We at Chipman Mazzucco Emerson stand ready to assist you in the new year as the Corporate Transparency Act takes effect.